It's certainly possible that all the money that was poured into tech got displaced into housing when the bubble popped and interest rates went to 1%. Now all the money that's been fleeing the housing market has gone into commodities. Where next? Well, perhaps they'll just start the spin cycle again.

While the value of money is being reduced by the increase of its supply through interest rate cuts it is only logical that commodity prices will increase. The graphs shown ressemble the increase in M3 money supply*.

Precious metals though are likely overvalued since they have risen much faster than money supply and much faster than other inflation.

I think drops in commodity prices will occur when interest rates stop falling and the world economy gets itself straight again.

(* I'm not saying I'm a monetarist by the above, it just that the evidence supports a link to money supply in this case).

I thought that the American dollar had been severed from value of commodities? If so, then can the price of the dollar really be relevant to the price of gold and other commodities? If not, then what can? Just curious, since the price of the Canadian dollar has been dropping meteorically lately, and I wondered if that was due to the fact that it's based on gold, unlike the US dollars.

I thought that the American dollar had been severed from value of commodities? If so, then can the price of the dollar really be relevant to the price of gold and other commodities? If not, then what can? Just curious, since the price of the Canadian dollar has been dropping meteorically lately, and I wondered if that was due to the fact that it's based on gold, unlike the US dollars.

The US dollar is not based on gold, as it was in the early 20th century. The Canadian dollar isn't based on a gold standard these days either.

However the US dollar is still the currency used to price precious metals. So, if it falls against all other world currencies then price of precious metals often rises. This is just an effect of measuring the price in dollars.

But, I don't think that the recent rise in the price of commodities is just down to falls in the dollar because even when measured in other world currencies the prices have been rising. Liberal Seagulls post looks quite precient already, since March 17th gold prices have been falling fast. But that may only be a short term movement.

The Canadian Dollar is not directly linked to the cost of Gold. It was Diefenbakerthat broke the link in the 60s. However, most of the worlds market sees Canadaas a resource based economy. We were getting away from it for a while, butthe current price of oil has increased the resource component of our economyto the point that it is difficult to argue. Thus a substantial part of the CanadianDollar is governed by world commodity prices, including Gold. This is one of the main reasons why the Canadian Dollar is currently so strong vs the US dollar.

The other major component of the Canadian Dollar is trade with the US, andwhy the Canadian Dollar is weak against the Euro (as I painfully rediscoverevery time I take money out against my $CDN salary while on sabbatical in Italy).